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Financial Market Response to the Japanese Ruling Party Vote

Currency strategists at leading investment firms have exited their strategies to hold a long position regarding the Japanese yen following the country’s governing party selected Takaichi as the new head.

In a note called “Leaving yen positions,” a chief for foreign exchange stated:

We held a long yen position in our FX Blueprint but have closed this due to the LDP election outcome. The unexpected win by Takaichi creates significant doubt around Japanese economic goals and the expected date of BoJ monetary tightening.

There is agreement that rising prices are an issue in Japan, but uncertainty is now going up again regarding how it will be addressed.

The analyst also warned indicators of government influence across Japan (in which politicians direct monetary policy decisions) pose a potential danger.

Gold Approaches the $4,000 Mark

Gold prices are hitting new all-time peaks, once more, in its top-performing period since the late 1970s.

The spot price of bullion has climbed by 1% or more today to $3,944 per ounce, approaching the $4,000 threshold.

This means the gold price has jumped by 50% since the start of January, likely to achieve its best annual gains in over 45 years.

The metal has risen in recent months by several factors, such as increasing fears that national debt levels cannot be maintained.

Sanae Takaichi’s election win in the party vote will only have reinforced apprehensions that leaders may try to secure growth through higher borrowing and cheaper credit, and depend on rising prices to diminish the worth of new borrowings.

Financial Summary

Japan’s stock market has surged to unprecedented levels in Monday trading, while the yen is plunging, following the top position of the country’s ruling party was surprisingly won by spending advocate Takaichi.

Expectations that the new leader will become a PM favoring economic stimulus has triggered a rush of positive investment driving Japan’s benchmark index to a 5% gain, rising by more than 2300 points to close at 48,085 points.

Yet the Japanese yen is very much moving the opposite way – it dropped almost 2% relative to the USD reaching 150.3 against the greenback.

Sanae Takaichi, who should become Japan’s first female prime minister soon, is a long-time admirer of Thatcher. Yet even though she holds conservative views on social policy, the new leader follows a contrasting path to fiscal policy, and promotes increased public expenditure and accommodative central bank measures.

Consequently, analysts anticipate to maintain the country’s drive to boost economic growth via government outlays and lower interest rates, potentially causing increased price pressures and increased borrowing.

Thus yen depreciation, with traders expecting reduced rate increases from the Bank of Japan than before.

Japan’s government bond values are also down today, pushing up the return on its 30-year debt close to all-time highs, because of predictions of increased debt issuance and lasting price increases.

Investors are assessing how closely the new leader’s plans will echo the “Abenomics” programme advocated by former PM Shinzo Abe.

A brokerage head commented:

Unlike in late 2024, she has not engaged from highlighting the three-arrow strategy during the party election, but experts understand her core beliefs and her appreciation of Abe’s Three Arrows philosophy.

Markets could then push to gain understanding on her policies, as well as exactly how influential she could be in forming monetary policy, ahead of the BoJ’s next meeting is seen as a “live” affair with a quarter-point increase seen as a real possibility...

Today’s Schedule

• 08:30 British Summer Time: European construction data for September
• 9.30am BST: UK construction PMI for September
• 6:30 PM UK time: Central bank head the BOE’s Andrew Bailey to speak at a financial forum this year